Exhibit 10.1
INTERIM INVESTMENT ADVISORY AGREEMENT
MACC PRIVATE EQUITIES INC.
A Delaware Corporation
This INTERIM INVESTMENT ADVISORY AGREEMENT dated as of April 30, 2005 (the
"Agreement") by MACC Private Equities Inc., a company organized under the laws
of the State of Delaware ("the Company"), and InvestAmerica Investment Advisors,
Inc., a corporation organized under the laws of the State of Delaware
("InvestAmerica").
WHEREAS, the Company is a closed-end investment company that may be
operated and regulated as a business development company ("Business Development
Company") as defined in the Investment Company Act of 1940, as amended (the
"ICA");
WHEREAS, InvestAmerica is qualified to provide investment advisory services
to the Company and is registered as an investment advisor under the Investment
Advisors Act of 1940, as amended.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
Section 1. Definitions.
1.1 "Affiliate" shall have the meaning given under Rule 144 of the
Securities Act of 1933, as amended.
1.2 "Assets Under Management" shall mean the total value of the Company's
assets managed by InvestAmerica under this Agreement.
1.3 "Capital Losses" are those which are placed, consistent with generally
accepted accounting principles, on the books of the Company and which occur
when:
(a) An actual or realized loss is sustained owing to Portfolio Company
or investment events including, but not limited to, liquidation, sale or
bankruptcy;
(b) The Board of Directors of the Company determines that a loss or
depreciation in value from the value on the date of this Agreement should be
taken by the Company in accordance with generally accepted accounting principles
and SBA accounting regulations and is shown on its books as a part of the
periodic valuation of the Portfolio Companies by the Board of Directors
("Unrealized Depreciation"); or
(c) Capital Losses are adjusted for reverses of depreciation when the
Board of Directors determines that a value should be adjusted upward and the
investment value remains at or below original cost.
1
For purposes of this definition, in any case where the Board of Directors of the
Company writes down the value of any investment in the Company's portfolio (in
accordance with the standards set forth in subsection 1.3(b) above), (i) such
reduction in value shall result in a new cost basis for such investment and (ii)
the most recent cost basis for such investment shall thereafter be used in the
determination of any Realized Capital Gains or Capital Losses in the Company's
portfolio (i.e., there shall be no double-counting of losses when a security
(whose value has declined in a prior period) is ultimately sold at a price below
its historical cost.)
1.4 "The Company" shall mean MACC Private Equities Inc., a Delaware
corporation.
1.5 "ICA" has the meaning set forth in the first recital hereof.
1.6 "Net Capital Gains" shall mean Realized Capital Gains net of Capital
Losses determined in accordance with generally accepted accounting principles.
1.7 "Other Venture Capital Funds" has the meaning set forth in subsection
3.2.
1.8 "Portfolio Company" or "Portfolio Companies" shall mean any entity in
which the Company may make an investment and with respect to which InvestAmerica
will be providing services pursuant hereto, which investments may include
ownership of capital stock, loans, receivables due from a Portfolio Company or
other debtor on sale of assets acquired in liquidation and assets acquired in
liquidation of any Portfolio Company.
1.9 "Private Capital" has the meaning ascribed to that term in the SBA
regulations in effect as of the date hereof (which regulations define Private
Capital to exclude unrealized gains and losses).
1.10 "Realized Capital Gains" shall mean capital gains after deducting the
cost and expenses necessary to achieve the gain (e.g., broker's fees). For
purposes of this Agreement, capital gains are Realized Capital Gains upon the
cash sale of the capital stock or assets of a Portfolio Company or any other
asset or item of property managed by InvestAmerica pursuant to the terms hereof
or any Realized Capital Gain has occurred in accordance with GAAP which is not
cash as described in the following sentence. Realized Capital Gains other than
cash gains, shall be recorded and calculated in the period the gain is realized;
however in determining payment of any incentive fee, the payment shall be made
when the cash is received. The amount of the fee earned on gains other than cash
shall be recorded as incentive fees payable on the financial statements of the
Company.
1.11 "SBA" shall mean the United States Small Business Administration.
1.12 "SEC" shall mean the United States Securities and Exchange Commission.
Section 2. Investment Advisory Engagement. The Company hereby engages
InvestAmerica as its investment advisor.
2.1 As such, InvestAmerica will:
2
(a) Manage, render advice with respect to, and make decisions
regarding the acquisition and disposition of securities in accordance with
applicable law and the Company's investment policies as set forth in writing by
the Board of Directors, to include (without limitation) the search and marketing
for investment leads, screening and research of investment opportunities,
maintenance and expansion of a co-investor network, review of appropriate
investment legal documentation, presentations of investments to the Company's
Board of Directors (when and as required), closing of investments, monitoring
and management of investments and exits, preparation of valuations, management
of relationships with the SEC, shareholders, outside auditors, and the provision
of other services appropriate to the management of a Business and Development
Company;
(b) Make available and, if requested by Portfolio Companies or
entities in which the Company is proposing to invest, render managerial
assistance to, and exercise management rights in, such Portfolio Companies and
entities as appropriate to maximize return for the Company and to comply with
regulations;
(c) Maintain office space and facilities to the extent required by
InvestAmerica to provide adequate management services to the Company;
(d) Maintain the books of account and other records and files for the
Company, but not to include auditing services; and
(e) Report to the Company's Board of Directors, or to any committee or
officers acting pursuant to the authority of the Board, at such reasonable times
and in such reasonable detail as the Board deems appropriate in order to enable
the Company to determine that investment policies are being observed and
implemented and that the obligations of InvestAmerica hereunder are being
fulfilled. Any investment program undertaken by InvestAmerica pursuant hereto
and any other activities undertaken by InvestAmerica on behalf of the Company
shall at all times be subject to applicable law and any directives of the
Company's Board of Directors or any duly constituted committee or officer acting
pursuant to the authority of the Company's Board of Directors.
2.2 InvestAmerica will be responsible for the following expenses: its
staff salaries and fringes, office space, office equipment and furniture,
communications, travel, meals and entertainment, conventions, seminars, office
supplies, dues and subscriptions, hiring fees, moving expenses, repair and
maintenance, employment taxes, in-house accounting expenses and minor
miscellaneous expenses.
InvestAmerica will pay for its own account all expenses incurred in
rendering the services to be rendered hereunder. Without limiting the generality
of the foregoing, InvestAmerica will pay the salaries and other employee
benefits of the persons in its organization whom it may engage to render such
services, including without limitation, persons in its organization who may from
time to time act as officers of the Company.
3
Notwithstanding the foregoing, InvestAmerica will earn incentive
compensation on a quarterly basis, which shall not be deemed part of
compensation or other employee benefits for the purpose of this paragraph.
2.3 In connection with the services provided, InvestAmerica will not be
responsible for the following expenses which shall be the sole responsibility of
the Company and will be paid promptly by the Company: auditing fees; all legal
expenses; legal fees normally paid by Portfolio Companies; National Association
of Small Business Investment Companies and other appropriate trade association
fees; brochures, advertising, marketing and publicity costs; interest on SBA or
other debt; fees to the Company and its directors and Board fees; any fees owed
or paid to the Company, its Affiliates or fund managers; any and all expenses
associated with property of a Portfolio Company taken or received by the Company
or on its behalf as a result of its investment in any Portfolio Company; all
reorganization and registration expenses of the Company; the fees and
disbursements of the Company's counsel, accountants, custodian, transfer agent
and registrar; fees and expenses incurred in producing and effecting filings
with federal and state securities administrators; costs of periodic reports to,
and other communications with the Company's shareholders; fees and expenses of
members of the Company's Board of Directors who are not directors, officers,
employees or Affiliates of InvestAmerica or of any entity which is an Affiliate
of InvestAmerica; premiums for the fidelity bond, if any, maintained by
InvestAmerica pursuant to ICA Section 17; premiums for directors and officers
insurance maintained by the Company; all transaction costs incident to the
acquisition, management and protection of and disposition of securities by the
Company; and any other expenses incurred by or on behalf of the Company that are
not expressly payable by InvestAmerica under Section 2.2. above.
2.4 Subject to approval by the Board of Directors of the Company and in
accordance with the ICA, InvestAmerica may retain one or more subadvisors to
assist it in performance of its duties hereunder.
Section 3. Nonexclusive Obligations; Co-investments.
3.1 The obligations of InvestAmerica to the Company are not exclusive.
InvestAmerica and its Affiliates, may in their discretion, manage other venture
capital funds and render the same or similar services to any other person or
persons who may be making the same or similar investments. The parties
acknowledge that InvestAmerica may offer the same investment opportunities as
may be offered to the Company to other persons for whom InvestAmerica is
providing services. Neither InvestAmerica nor any of its Affiliates shall in any
manner be liable to the Company or its Affiliates by reason of the activities of
InvestAmerica or its Affiliates on behalf of other persons and funds as
described in this paragraph and any conflict of interest arising therefrom is
hereby expressly waived.
3.2 For the benefit of the Company's investment activities, InvestAmerica
and its Affiliates intend to maintain various future co-investment relationships
involving the Company which may result in the Company being accorded the
opportunity in the future to review and to invest in certain investments found
by other venture capital funds managed by InvestAmerica
4
and its Affiliates, including NDSBIC, L.P., Xxxxx and Xxxxx Private Equities,
LP, and Invest Northwest, LP (collectively, the "Other Venture Capital Funds").
For purposes of this Section 3.2, where the Company has an opportunity to
co-invest with the Other Venture Capital Funds, investment opportunities shall
be offered to the Company and the Other Venture Capital Funds, as the case may
be, (a) in the same proportion as its Private Capital bears to the total Private
Capital of the Company and the Other Venture Capital Funds with which the
Company proposes to co-invest, in the aggregate, or (b) in such other manner as
is otherwise agreed upon by the Company and the Other Venture Capital Funds.
Notwithstanding anything to the contrary contained in this Section 3.2, the
terms of any exemptive order applicable to co-investments between the Other
Venture Capital Funds and the Company will control as to the terms of
co-investments among the Company and Other Capital Venture Funds.
3.3 InvestAmerica will cause to be offered to the Company opportunities to
acquire or dispose of securities as provided in the co-investment guidelines
summarized in the section of the Company's SEC Registration Statement entitled
"Investment Objectives and Policies -- Co-Investment Guidelines." Except to the
extent of acquisitions and dispositions that, in accordance with such
co-investment guidelines, require the specific approval of the Company's Board
of Directors, InvestAmerica is authorized to effect acquisitions and
dispositions of securities for the Company's account in InvestAmerica's
discretion. Where such approval is required, InvestAmerica is authorized to
effect acquisitions and dispositions for the Company's account upon and to the
extent of such approval. The Company will put InvestAmerica in funds whenever
InvestAmerica requires funds for an acquisition of securities in accordance with
the foregoing, and the Company will cause to be delivered in accordance with
InvestAmerica's instructions any securities disposed of in accordance with the
foregoing.
3.4 Should InvestAmerica or any of its Affiliates agree to perform or
undertake any investment management services described in Section 3.1 for any
funds or persons in addition to the Company, InvestAmerica will notify the
Company, in writing, not later than the commencement of such agreement or the
initial provision of such services.
3.5 Any such investment management services and all co-investments shall
at all times be provided in strict accordance with rules and regulations under
the ICA, any exemptive order thereunder applicable to the Company and the rules
and regulations of the SBA.
Section 4. Services to Portfolio Companies.
4.1 It is acknowledged that as a part of the services to be provided by
InvestAmerica hereunder, certain of its employees, representatives and agents
will act as members of the board of directors of individual Portfolio Companies,
will vote the shares of the capital stock of Portfolio Companies, and make other
decisions which may effect the near-and the long-term direction of a Portfolio
Company. Unless otherwise restricted hereafter by the Company in writing, in
regard to such actions and decisions the Company hereby appoints InvestAmerica
(and such officers, Directors, employees, representatives and agents is it shall
designate) as its proxy, as a result of which InvestAmerica shall have the
authority, in its performance of this
5
Agreement, to make decisions and to take such actions, without specific
authority from the Board of Directors of the Company, as to all matters which
are not hereby restricted.
4.2 All fees, including director's fees that may be paid by or for the
account of an entity in which the Company has invested or in which the Company
is proposing to invest in connection with an investment transaction in which the
Company participates or provides managerial assistance, will be treated as
commitment fees or management fees and will be received by the Company, pro rata
to its participation in such transaction. InvestAmerica will be allowed to be
reimbursed by Portfolio Companies for all direct expenses associated with due
diligence and management of portfolio investments or investment opportunities
(travel, meals, lodging, etc.).
4.3 The sole and exclusive compensation to InvestAmerica for its services
to be rendered hereunder will be in the form of a management fee and a separate
incentive fee as provided in Section 5. Should any officer, director, employee
or Affiliate of InvestAmerica serve as a member of the Board of Directors of the
Company, such officer, director, employee or Affiliate of InvestAmerica shall
not receive compensation as a member of the Board of Directors of the Company.
Section 5. Management and Incentive Fees.
5.1 During the term of this Agreement, the Company will pay InvestAmerica
monthly in arrears a management fee equal to 1.5% per annum of the Assets Under
Management. The Management fee shall be calculated on a non-consolidated basis,
excluding MorAmerica Capital Corporation.
5.2 During the term of this Agreement the Company shall pay to
InvestAmerica an incentive fee determined as specified in this Section 5.2. The
incentive fee shall be calculated on a nonconsolidated basis, excluding
MorAmerica Capital Corporation.
(a) The incentive fee shall be calculated as follows:
(i) The amount of the fee shall be 13.4% of the Net Capital
Gains, before taxes, resulting from the disposition of investments in the
Company's Portfolio Companies or resulting from the disposition of other assets
or property of the Company managed by InvestAmerica pursuant to the terms
hereof.
(ii) Net Capital Gains, before taxes, shall be calculated
annually at the end of each fiscal year for the purpose of determining the
earned incentive fee, unless this Agreement is terminated prior to the
completion of any fiscal year, then such calculation shall be made at the end of
such shorter period. A preliminary calculation shall be made on the last
business day of each of the three fiscal quarters preceding the end of each
fiscal year for the purpose of determining the incentive fee payable under
Section 5.2(c)(i) below. Capital Losses and Realized Capital Gains shall not be
cumulative (i.e., no Capital Losses nor Realized Capital Gains are carried
forward into any subsequent fiscal year).
6
(iii) The incentive fee for the fiscal year ended September 30,
2005 shall be computed based on the full fiscal year, even though this Agreement
commenced on April 30, 2005.
(b) Upon termination of this Agreement all earned but unpaid incentive
fees shall be immediately due and payable; provided, however, that incentive
fees earned with respect to non-cash Realized Capital Gains shall not be due and
owing to InvestAmerica until the cash is received by the Company.
Notwithstanding the foregoing, in the event this Agreement is replaced by an
agreement having substantially similar terms, no payment pursuant to Section 5.2
shall be payable to InvestAmerica, but any payments accruing pursuant to Section
5.2 shall be payable pursuant to the terms of any such replacement agreement.
(c) Payment of incentive fees shall be made as follows:
(i) To the extent payable, incentive fees shall be paid, in cash,
in arrears on the last business day of each fiscal quarter in the fiscal year.
(ii) The incentive fee shall be retroactively adjusted as soon as
practicable following completion of the valuations at the end of each fiscal
year in which this Agreement is in effect to reflect the actual incentive fee
due and owing to InvestAmerica, and if such adjustment reveals that
InvestAmerica has received more incentive fee income than it is entitled to
hereunder, InvestAmerica shall promptly reimburse the Company for the amount of
the excess.
Section 6. Liability and Indemnification of InvestAmerica.
6.1 Neither InvestAmerica, nor any of its officers, directors,
shareholders, employees, agents or Affiliates, whether past, present or future
(collectively, the "Indemnified Parties"), shall be liable to the Company, or
any of its Affiliates for any error in judgment or mistake of law made by the
Indemnified Parties in connection with any investment made by or for the
Company, provided such error or mistake was made in good faith and was not made
in bad faith or as a result of gross negligence or willful misconduct of the
Indemnified Parties. The Company confirms that in performing services hereunder
InvestAmerica will be an agent of the Company for the purpose of the
indemnification provisions of the Bylaws of the Company subject, however, to the
same limitations as though InvestAmerica were a director or officer of the
Company. InvestAmerica shall not be liable to the Company, its shareholders or
its creditors, except for violations of law or for conduct which would preclude
InvestAmerica from being indemnified under such provisions. The provisions of
this Section 6.1 shall survive termination of this Agreement.
6.2 Individuals who are Affiliates of InvestAmerica and are also officers
or directors of the Company as well as other InvestAmerica officers performing
duties within the scope of this Agreement on behalf of the Company will be
covered by any directors and officers insurance policy maintained by the
Company.
Section 7. Shareholder Approval; Term.
7
The Company represents that this Agreement has been approved by the
Company's Board of Directors in accord with Rule 15a-4 adopted pursuant to the
ICA. This Agreement shall continue in effect for no more than one hundred fifty
(150) days from the date hereof and shall automatically terminate upon the
effectiveness of a replacement advisory agreement for the Company. The foregoing
notwithstanding, this Agreement may be terminated by the Company at any time,
without payment of any penalty, on sixty (60) days' written notice to
InvestAmerica if the decision to terminate has been made by the Board of
Directors or by vote of the holders of a majority, as defined in the ICA, of the
Company's outstanding voting securities.
InvestAmerica may also terminate this Agreement on sixty (60) days' written
notice to the Company; provided, however, that InvestAmerica may not so
terminate this Agreement unless another investment advisory agreement has been
approved by the vote of a majority, as defined in the ICA, of the Company's
outstanding shares and by the Board of Directors, including a majority of
members who are not parties to such agreement or interested persons of any such
party. Upon receipt of any such notice from InvestAmerica, the Company will in
good faith use its best efforts to cause an advisory agreement to be entered
into by the Company with a suitable investment adviser.
Section 8. Assignment.
This Agreement may not be assigned by any party without the written consent
of the other and any assignment, as defined in the ICA, by InvestAmerica shall
automatically terminate this Agreement.
Section 9. Amendments.
This Agreement may be amended only by an instrument in writing executed by
all parties.
Section 10. Governing Law.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware.
[Signature page follows.]
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first above written.
THE COMPANY:
MACC PRIVATE EQUITIES, INC.
A Delaware corporation
By: /s/ Xxxxx X. Xxxxxxxx
--------------------------------------
Xxxxx X. Xxxxxxxx
President and Secretary
INVESTAMERICA:
INVESTAMERICA INVESTMENT ADVISORS, INC.
A Delaware corporation
By: /s/ Xxxxxx X. Xxxxx
--------------------------------------
Xxxxxx X. Xxxxx
Executive Vice President
9
